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Role of Mutual Fund
Role of Mutual Fund
Role of Mutual Fund
INTRODUCTION
A Mutual Fund is a trust that pools the savings of a number of investors who share a common financial goal. The money thus collected is then invested in capital market instruments such as shares, debentures and other securities. The income earned through these investments and the capital appreciation realised are shared by its unit holders in proportion to the number of units owned by them. Thus a Mutual Fund is the most suitable investment for the common man as it offers an opportunity to invest in a diversified, professionally managed basket of securities at a relatively low cost. The flow chart below describes broadly the working of a mutual fund Some of the many benefits of investing in mutual funds are: Easy to buy and sell. Investments can be made in lump sum or periodic payments (easy on the pocket). Mutual fund industry in India is very well regulated and transparent. Professional management - saves time and costs. Diversification - to protect from downside risk. Rupee cost averaging profit from small regular investments. Various Mutual Fund schemes and their implications :Mutual fund schemes are classified on the basis of its structure and investment objective. By Structure Open ended funds Close-ended funds. Interval Funds By Investment objective Growth funds Income funds
The supervisory authority adopted a set of measures to create a transparent and competitve environment in mutual funds. Some of them were like relaxing investment restrictions into the market, introduction of open-ended funds, and paving the gateway for mutual funds to launch pension schemes. The measure was taken to make mutual funds the key instrument for long-term saving. The more the variety offered, the quantitative will be investors. At last to mention, as long as mutual fund companies are performing with lower risks and higher profitability within a short span of time, more and more people will be inclined to invest until and unless they are fully educated with the dos and donts of mutual funds. Mutual Fund Companies in India : The concept of mutual funds in India dates back to the year 1963. The era between 1963 and 1987 marked the existance of only one mutual fund company in India with Rs. 67bn assets under management (AUM), by the end of its monopoly era, the Unit Trust of India (UTI). By the end of the 80s decade, few other mutual fund companies in India took their position in mutual fund market. The new entries of mutual fund companies in India were SBI Mutual Fund, Canbank Mutual Fund, Punjab National Bank Mutual Fund, Indian Bank Mutual Fund, Bank of India Mutual Fund. The succeeding decade showed a new horizon in indian mutual fund industry. By the end of 1993, the total AUM of the industry was Rs. 470.04 bn. The private sector funds started penetrating the fund families. In the same year the first Mutual Fund Regulations came into existance with re-registering all mutual funds except UTI. The regulations were further given a revised shape in 1996. Kothari Pioneer was the first private sector mutual fund company in India which has now merged with Franklin Templeton. Just after ten years with private sector players penetration, the total assets rose up to Rs. 1218.05 bn. Today there are 33 mutual fund companies in India.
PROFITABILITY: The increase in revenue and profitability, however, has been not commensurate with the AUM growth in the last five years. The growth in AUM accompanied by a decline in profitability necessitates an analysis of the underlying characteristics that have a bearing on the growth and profitability of the India Mutual Fund industry.
The Future of Mutual Funds In India is quite bright. Mutual Funds are one of the most popular forms of investments as these funds are diversification, professional management, and liquidity. In the year 2004, the mutual fund industry in India was worth Rs 1,50,537 crores. The mutual fund industry is expected to grow at a rate of 13.4% over the next 10 years.
Mutual Fund Assets under Management (MF AUM)-Growth In March 1998, the MF AUM was Rs. 68984 crores. In March 2000, the MF AUM was Rs. 93717 crores and the percentage growth was 26 %. In March 2001, the MF AUM was Rs. 83131 crores and the percentage growth was 13 %. In March 2002, the MF AUM was Rs. 94017 crores and the percentage growth was 12 %. In March 2003, the MF AUM was Rs. 75306 crores and the percentage growth was 25 %. In March 2004, the MF AUM was Rs. 137626 crores and the percentage growth was 45 %. In September 2004, the MF AUM was Rs. 151141 crores and the percentage growth was 9 % in 6 months time. In December 2004, the MF AUM was Rs. 149300 crores and the percentage growth was 1 % in 2 months time. Future of Mutual Funds In India-Facts on growth Important aspects related to the future of mutual funds in India are The growth rate was 100 % in 6 previous years. The saving rate in India is 23 %.
There is a huge scope in the future for the expansion of the mutual funds industry. A number of foreign based assets management companies are venturing into Indian markets. The Securities Exchange Board of India has allowed the introduction of commodity mutual funds. The emphasis is being given on the effective corporate governance of Mutual Funds. The Mutual funds in India has the scope of penetrating into the rural and semi urban areas. Financial planners are introduced into the market, which would provide the people with better financial planning.
CONCLUSION
With the structural liberalization policies no doubt Indian economy is likely to return to a high grow path in few years. Hence mutual fund organizations are needed to upgrade their skills and technology. Success of mutual fund however would bright depending upon the implementation of suggestions.